Health insurance companies still have much to learn on managing costs

The reason health insurance companies are easy to dislike is because they’re the ones who control most of the money, and they’re the ones who say “yea” or “nay” when it comes to paying many people’s medical bills.

That’s a lot of power in the health care equation. Most of us don’t like anyone who has that much control, especially over our health and money.

Joe HermittHighmark employees process claims.

About 30 years ago, employers started complaining about how much insurance costs. One reason it was so expensive was that no one, including the insurance companies, had any control over how much doctors or hospitals charged or whether the medical services were actually needed.

While insurance actuaries were cooking up ways to limit payments with things such as “usual and customary” charge masters, a whole different group of people was starting things called health maintenance organizations.

Most people don’t know the original HMOs were based on the idea that a clearly defined (and fairly small) group of doctors and hospitals would contract directly with employers and accept prepayment in exchange for taking care of the people who voluntarily agreed to use the limited physicians and hospitals in the group.

If a patient had a condition that required sub-specialized care the group couldn’t provide, then they would get referred someplace where they could. This didn’t seem too creepy because (at least where I was at the time in Boston) the hospitals were all Harvard teaching hospitals, and the doctors were mostly Harvard faculty.

The valuable lessons of the original HMOs need to be revisited and revived, says Russell Roeder.

The premiums were much cheaper and the HMOs were offered by employers as an alternative to regular insurance. One of the reasons the HMOs were cheaper was that the doctors and hospitals that treated patients collaborated on developing consistent sets of clinical protocols for different conditions and diseases and the various treatment centers talked to each other about patients they shared. This was pretty efficient compared with the helter-skelter approach that otherwise existed.

HMOs started catching on. So much so that the regular insurance companies started losing market share, which, of course, had never happened before. Realizing they weren’t actually in the health care business like the HMOs, the insurance companies did the next best thing. They invented managed care.

What happened next was not pretty. In an attempt to replicate the cost savings that the fledgling physician/hospital operated HMOs had achieved by providing preventive care and actually coordinating clinical services, insurers used their considerable market power to impose fixed fee schedules on hospitals and doctors. They began enforcing prior authorization and referral policies that were developed by committees and medical directors who worked for the insurance companies.

It is a fair generalization to say doctors don’t appreciate being told what to do, especially by insurance companies that also fix their fees. This approach didn’t go any better with the hospitals, and soon the phrase, managed care, was demonized by pretty much the entire provider community who told their patients it was a conspiracy that surely led to sub-standard care.

The best defense is a good offense. Insurance companies undertook massive advertising campaigns to persuade us that they cared about us in the same way a kindly, wise, rich uncle might. This is no more convincing today than it was when it started, and I wonder sometimes how much prenatal care could be paid for with the combined advertising and PR budgets of American health insurers.

Thirty years later we are left with the same problem: Health care costs continue to increase at an unsustainable rate.

By most measures, the United States ranks abysmally low among industrialized nations in disease prevention, management and quality. And, having grown resentful and defensive over the course of its cold war with insurers, the provider community has distanced itself from the idea of assuming any meaningful role in controlling costs.

Russell Roeder

What is clear is that insurance companies can’t manage care. Physicians and hospitals need to do this. But they need to be accountable — clinically and financially — for the quality and cost of the care they deliver.

The valuable lessons of the original HMOs need to be revisited and revived.
What’s encouraging is that there is a kind of “back to the future” movement called patient centered medical home. One of the few lucid elements in the otherwise insane health care reform legislation is funding that can help position insurers and providers to do what the original HMOs actually accomplished, which is to prevent illness that is preventable, and manage care that is manageable in the framework of a clearly defined and accountable system of financing and delivery.

The seed money that exists in the reform package needs to be carefully cultivated and not squandered or pillaged as it was when HMOs made their first appearance in the 1970s.

RUSSELL ROEDER of Harrisburg is president of Skipstone Consulting. russell.skipstone@comcast.net.